Construction Spending Slides in November
Both private residential and non-residential spending were down for the month, but spending was up for erecting schools and for certain other publicly-funded projects, all of which are generally less affected in the short term by the level and direction of interest rates. Especially with the building of schools, construction decisions are usually made long before funds are disbursed for the actual mortar and bricks. Public construction projects at the local and state levels tend to be somewhat less sensitive to interest rates for two other reasons, as well: first, the cost/benefit analysis weighs the cost of debt financing differently due to the financing of debt service and retirement through taxes and not through business profits; and second, compared to private and commercial borrowers, school districts and other debt-issuing authorites pay considerably lower interest rates on their borrowings because of the tax-exempt status of bonds they issue.
At the federal level, overall construction spending was down 2.1%, as the government reduced its construction of housing and highways, while at the same time increasing expenditures on military-related construction.
Private residential construction spending in November fell by 0.4%, a decline not seen in three years, and overall residential construction spending eased back 0.3%. Private non-residential construction, which many economists view as a significant leading indicator of general economic activity in the months ahead, slid 1.2%. Coupled with the dramatic fall in the rate of new home purchases reported last week, the numbers continue to paint a picture of an economy where a broad swath of activity is showing demonstrable signs of losing momentum in the rising interest rate environment. In a job market that for several years has been lackluster at best, the construction industry was an area of solid numbers and growth. As that sector begins to lose its ability to retain the level of jobs it has been providing—much less to produce new jobs for the growing workforce—the prospects for the economy as a whole dim considerably.
Perhaps more worrisome is that these interest rate-sensitive sectors of the economy are reacting adversely in the very early phases of what may be a long march upward in interest rates over the next several years as mounting federal budget deficits push bond yields ever higher at the same time the Federal Reserve has indicated that it will more tightly control the money supply to fight off the prospects of inflation.
Administration officials offered no comment on the drop in construction spending; and mainstream media outlets made little mention of it, choosing instead to focus today on a surprising drop in first-time claims for unemployment benefits last month, failing to note that waves of layoffs in previous months have left the ranks of those now becoming unemployed dominated by workers who do not qualify for or do not seek unemployment benefits, either because the jobs they lost were low-end, service sector positions, or because they were holding more than one job to begin with. Bolstering the case for this explanation for the drop in first-time claims, the number of workers applying to continue receiving unemployment benefits rose by slightly more than 1%, according to the Department of Labor.
Published 1/04/2005 01:18:26 AM
<< 12 Comments Total
Ah, now I think I know why there was a sell-off on Wall St. yesterday.
- oddjob
Good morning, OddJob.
Yes. Wall Street is getting nervous. The daily infusions of good news from the lighter end of the mainstream media are losing their grip. As the days go by, I'm seeing more and more prominence to the troubling signs in what might be called the "hard-core" business press. This is the thread of information upon which I've been focusing here on The Dark Wraith Forums because it is that disturbing little drum beat of bad economic news coming from the other side of the hill that, if it goes on long enough, begins to get the attention of the fund managers and other heavy-hitters.
The one thing that gives me impetus to keep hammering on these stories that don't seem to have any legs in the mainstream media is that the analysts' projections on these numbers are consistently coming in too optimistic. I know how their models work—and they're decent models, I should point out—and when those models keep forecasting too high, that means a fundamental corner just might have been turned, and its turn hasn't taken hold in the models, yet.
Of course, I could be wrong. We might be in for years and years of booming prosperity driven by a new, "ownership society" created by neo-conservative economic policies that foster wealth, opportunity, and a renewed sense of the greatness of America.
But I don't think so.
The Dark Wraith lays his bet.
You two read my mind. The good news about the media is trumpeting about the stock market falls on my deaf ears. Isn't it possible afterall, for a sunny forecast on the stock market and thunderstorms for the average Joe on the street? I'm just wondering. A theme that keeps arising here on the forum is that there is a real divide between those who are on the "ins" and those who aren't; if you're in the know, lucky you, if not, too bad for you...
For example, during an economic slow-down, belt tightening is generally seen among the middle and lower classes, and even those in the upper-middle class tend to watch their pocket books. But the very rich don't stop spending. Outlets selling luxury items rarely take a hit.
Yesterday I saw a guy in the cafe with the financial sections of two newspapers--Sunday NYT (I believe about the weak US dollar) and Monday's Boston Globe--in one hand, and a thick tome entitled "MARXISM" in the other. I had to chuckle.
--cam
I knew that housing starts is one of the big "leading economic indicators". What are the other major ones?
Isn't there a "generally accepted" significance placed upon a three month decline in housing starts as a significant indicator of an impending contraction in the economy?
- oddjob
Good morning, Cam. I was wondering what had become of you.
Every semester in my principles of economics classes, I require my students to read literature from the foundations of right-wing economics as well as leftist economics. For the latter topic, they read The Manifesto of the Communist Party (the "Communist Manifesto"), by Karl Marx (English translation of the 1888 edition, edited by Friedrich Engles).
An older, fellow professor who is an admirer of George W. Bush was somewhat bewildered as to why I was teaching "radical political philosophy" in an economics class.
He had made no negative comments previously when he heard that I was teaching the radical economic philosophy of men like Adam Smith and Ludwig von Mises: it seems that theoreticians of that mindset are just fine; but God forbid anyone should give students the idea that Marxism might have any relevance at all to the dismal science.
The vast body of economic thought derives from Adam Smith and the Austrian School of Economics. The students leave classes in economics changed quite a bit for having been exposed to the bedrock principles embodied in what is quite conservative economic philosophy, and what crosses the line into radical, Right-wing political/social philosophy from time to time (despite the denials by conservative economists).
I invited this professor to attend my two-part lecture on Marxist economics, which sweeps from Rousseau, through Hegel, to Feuerbach and other "young Hegelians," before plowing into Marxist economic theory. My fellow professor declined.
Pity. Both conservative and liberal students leave those sessions quietly but most evidently changed forever.
And that's a good thing.
The Dark Wraith prepares for yet another semester of corrupting the youth of this nation.
Good morning, once again, OddJob.
Below is a pretty standard list of the leading indicators. When these are put together in an "index" that is reported in the news media, different weights are applied to different components, so it's not a simple average.
• Average weekly hours, manufacturing;
• Average weekly initial claims for unemployment insurance;
• Manufacturers' new orders, consumer goods and materials;
• Vendor performance, slower deliveries diffusion index;
• Manufacturers' new orders, nondefense capital goods;
• Building permits, new private housing units;
• Stock prices, 500 common stocks;
• Money supply, M2;
• Interest rate spread, 10-year;
• Treasury bonds less federal funds;
• Index of consumer expectations;
Ranking them in terms of importance depends to some extent upon who is making that determination. That having been said, building permits is considered pretty important. So is the average number of weekly hours in the manufacturing sector. Some economists and many media types are fascinated by the consumer confidence measures (although I am not so impressed with such subjective numbers unless they're showing a serious trend).
The measures of interest rates are very important, but it seems that the big indices that are widely published have way over-played those for some time. This is because interest rates had gotten so low (because of activist Federal Reserve policy to print money like candy) that the numbers became almost meaningless. Now, however, those numbers are starting to come to life, and they'll be carrying quite a bit of importance for the level and direction of economic activity in the year ahead, so downplaying their importance—as is being done in the mainstream press—is done at considerable peril.
You are, by the way, correct that a number of economists see three straight months of decline in construction spending (or housing starts or some related measure) as being significant. I certainly do: the United States economy is heavily dependent upon the construction industry. Part of that is because of many decades of distortionary tax policy that encouraged over-building of owner-occupied housing and massive commercial building expenditures. Whether or not such social policy being articulated through the tax code was proper is a matter into which I shan't delve; however, the effect of this policy was to make the American economy very dependent—way too dependent, if you ask me—upon that key sector. Again, this is why The Dark Wraith Forums has spent a somewhat disproportionate number of articles pointing out the growing weakness there and the probable consequences such weakness will have on the economy.
Although most of those leading indicators I listed are pretty self-explanatory, if you want some more insight into any of them, just ask.
The Dark Wraith heads over to the school, again, to see who's around.
If the problem with free market absolutists is their refusal to accept that it's impossible for a free market to funciton as they believe it does unless all information is at hand before a transaction is enacted, it would seem to me the problem with Marxist economics is its (implicit?) assumption that people can be taught/trained to be perfectly altruistic.
If people could be so trained, I have (since I was a teenager) always hard a difficult time concluding that there is anything wrong with "from each according to his abilities to each according to his needs".
Do you agree with my assessment of Marxism's weakness (even if it's only a first order approximation)?
- oddjob
DW: I'm still here. I am busy procrastinating on literally mounds of work that I now have to get done at break-neck speed. Meanwhile, I went to Maine over the weekend, nothing like a jaunt for wasting time I don't have. During the drive, I saw not one, but two bald eagles (I was NOT driving). Lucky for me, they were cruising for food and so were flying relatively low. Unmistakable to anyone paying attention.
(I also saw a guy leaning out of the passenger side of an Audi, losing his breakfast.)
News (non)Flash to those attention-payers here at The Dark Wraith Forums: The Feds say that interest rates are too low to guard against inflation. Is the issue even inflation at all? Surely, raising interest rates will help fix the US dollar which, on this January 4th, 2004, is the only thing in America currently losing weight. I think the feds just want to warn everyone that higher rates are on the horizon. The story of inflation just helps get the story down the throat a little easier, and the Feds know it. You can warm people up to rising interest rates if you can convince them that if you don't raise them, unchecked inflation will ensue. Problem solved.
--cam
DW: I'm still here. I am busy procrastinating on literally mounds of work that I now have to get done at break-neck speed. Meanwhile, I went to Maine over the weekend, nothing like a jaunt for wasting time I don't have. During the drive, I saw not one, but two bald eagles (I was NOT driving). Lucky for me, they were cruising for food and so were flying relatively low. Unmistakable to anyone paying attention.
(I also saw a guy leaning out of the passenger side of an Audi, losing his breakfast.)
News (non)Flash to those attention-payers here at The Dark Wraith Forums: The Feds say that interest rates are too low to guard against inflation. Is the issue even inflation at all? Surely, raising interest rates will help fix the US dollar which, on this January 4th, 2004, is the only thing in America currently losing weight. I think the feds just want to warn everyone that higher rates are on the horizon. The story of inflation just helps get the story down the throat a little easier, and the Feds know it. You can warm people up to rising interest rates if you can convince them that if you don't raise them, unchecked inflation will ensue. Problem solved.
--cam
Good evening, OddJob.
Supposedly, Voltaire said of Rousseau:, "Ah, Jean-Jacques, you would have us return to the trees and live as monkeys, yes?"
Rousseau set forth a model of community in which the citizens and their government functioned within a social contract by which the people would give freely and all of themselves to their society, and the government as the representative of that larger organization of the people would reciprocate in kind. Rousseau claimed that this was the natural state of man: to live in harmony with his fellow man; and the good government—the directed government that understands it proper role and is fearless in prosecuting its achievement—will bring this back to the fore in its people.
Rousseau, in describing this primitive and idyllic state, was continuing in a tradition that is as old as myth itself: somewhere in the very distant past, humans were in a utopian world; but through the devices of their darker nature, they somehow fell from grace.
We see this myth of origins in cultures around the world. The Fall of Man is always of his own devices, but always with the help of some force or being of malevolent intent just beyond our understanding and, unfortunately, our ability to deny. This interloper is, of course, that part of our nature—utterly inexplicable to us—that has the uncanny habit of ruining our lives through war, vice, or excessive virtue.
Rousseau saw the development of the concept of private property as a chief culprit in our fall from a perfect world: once people defined themselves territorially, they necessarily began the process of isolating themselves from their community and from their fellow man.
The so-called "Young Hegelian," Feuerbach, picked up on this theme, pointing to religion as a powerfully divisive force: whereas religion gives expression to human suffering, it does nothing to take us from that place of suffering. In particular, religions like Christianity configure us as mortals in a relationship with not just an almighty God, but a perfect one, as well. No matter what we do, no matter how good we are, no matter even how much we suffer in this life, it is nothing compared to what our god does, how well He does it, and how much He, through His sacrificed Son, suffered on our behalf.
For Marx, another Young Hegelian, all of this came together in a repudiation of those things through the ages that had separated us from our better nature, from that part of us in our origins that will—in the absence of religion, private property, and the false promise of unbridled self-interest—lead us back to where we were.
Sadly, that place of the good beginnings never existed. Calling us to return there is calling us to travel to a place for which the journey's map can be no more real than the place, itself.
Perhaps the greatest pain I suffer in my mind is knowing that my philosophical choice is thus: to live in a warm dream of graceful social justice for all that never was and never will be, or to live in a cold reality of brutish self-interest that always was and always will be.
Either way, life continues. And we are at once more and less for that.
The Dark Wraith has blogged.
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